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Flipping land for a profit may seem like a simple money-making scheme – buy cheap, sell high. But hidden expenses at every stage of the land flip can rapidly eat into your bottom line. From property taxes and maintenance fees to closing costs and marketing expenses, these profit-killers add up fast. This post reveals the top 10 stealthy costs of land flipping that can deflate your deals if not properly accounted for. With insider tips from expert land flippers, you’ll learn how to accurately estimate expenses and set realistic profit targets to turn positive on every land deal. Stick around as we dig into the murky world of land flip budgeting and expose the cost considerations most new investors overlook.
What are the upfront costs to acquire land for flipping?
When acquiring land specifically for the purpose of flipping, there are a number of upfront costs you need to factor into your budget. The largest will likely be the purchase price of the land itself. But beyond just the base price, some other major upfront costs can include:
- Earnest money deposit – This refundable deposit (typically 1-10% of total purchase price) shows the seller you are serious as a buyer. It goes towards the eventual full purchase price.
- Land appraisal fees – Paying for an independent appraisal is highly recommended to determine fair market value and not overpay. Appraisal fees are usually $3,000-$5,000.
- Land survey cost – Surveying property boundaries, easements, rights of way, etc. is crucial. This typically costs around $1,000-$1,500.
- Inspections – General property inspection, environmental testing for contaminants, drainage testing, soil tests all help uncover issues. Inspection fees can tally $3,000 or more.
- Closing costs – Various title search, insurance, attorney, documentation, recording charges can total 1-5% of land purchase price.
- Property taxes – Prorated share of annual county/city property tax bill needs payment at closing.
Getting hit with unexpected costs sinks land flip profits. So budgeting for these upfront expenses when acquiring land is key. Do your due diligence before making a purchase offer.
What fees come up when closing on a land purchase?
Closing on a land purchase transaction involves quite a few fees that can really add up. Knowing what closing costs to expect allows you to budget properly when buying land for flipping or development. Some of the most common fees that come up include:
Title Fees – This includes charges for the title search to verify legal ownership, as well as title insurance to protect lenders and buyers from any problems with the title. Title fees can range from several hundred dollars into the thousands.
Legal Fees – Most buyers work with a real estate attorney to review sale documents and represent their interests. Attorneys typically charge $500-$1,000 or more, depending on deal complexity.
Recording Fees – The deeds and land title documents must get officially recorded with the county. This recording facilitation can cost around $100 per document filed.
Survey Fees – If an updated land survey is required by the buyer or lender, this professional land survey can cost $1,000-$1,500 on average.
Inspection Fees – General property inspections, environmental tests, soil tests may be prudent and required. These inspections can tally $500-$3,000 or more depending on extent.
Taxes – Any owed property taxes must get paid as part of the closing costs, sometimes requiring tax bill proration between buyer and seller.
When buying land for flipping purposes, understanding these closing fees allows you to crunch the numbers to maximize your deal profit margins. It’s not just the land purchase price – closing costs can really cut into flip profits if not properly budgeted for.
What expenses are needed to develop or improve land?
Site Preparation – Land often requires clearing, grading, leveling, access roads, etc. which needs excavation, bulldozing, backfilling equipment. Costs tally $5,000+ very quickly.
Utilities Access – Running water, sewer, electric, gas utilities to property lines or installing well/septic systems carries high expense if lacking. Cost to develop varies greatly.
Drainage & Erosion Control – Properly grading land for stormwater runoff, installing pond drainage basins, stabilization plantings/netting to prevent soil erosion are crucial land improvements.
Permits & Fees – All required municipal permits, engineering approvals, zoning and inspection fees to develop land fully tally thousands of dollars typically.
Consultants & Contractors – Architects, project managers, builders must get paid for their expertise planning and executing major land improvements, adding significantly to expense.
When improving raw land for higher sellability, failed budgeting leads to busted land flip deals. Getting qualified estimates on essential engineering, equipment work, permitting, utility access and construction before setting asking prices and profits is key. Unexpected development costs sink land investors swiftly and frequently. Do diligence beforehand to see realistic expenses for turning vacant land into an attractive resale property through site development.
What ongoing costs are there to hold the land?
Property Taxes – You must continue paying county/municipal property tax bills on the land each year while retaining ownership, even if undeveloped. Can tally thousands of dollars annually.
Land Mortgage Payments – If leveraged financing was required to purchase land, ongoing loan principal + interest payments persist until property gets sold.
Maintenance Costs – Even raw land requires some regular costs for brush clearing, weed control, fence/access repairs, basic upkeep over months/years.
Utilities – Any utilized utility lines on property (well water, septic, electric) require ongoing service fees or repairs over time while being held.
Insurance Premiums – Insuring vacant land against liability and property damage from risks like fire or floods involves annual premium dues. Typically just a few hundred dollars or more per year.
By staying on top of these recurring ownership costs accrued over months or years during longer land holds, flippers avoid headaches and financial surprises down the road. Budgeting a few thousand dollars annually for taxes, mortgage payments if leveraged, basic maintenance, plus insurance helps minimize overhead while awaiting the payday from a profitable land sale. Failing to account for carry costs sinks many wannabe land flippers prematurely.
What marketing costs are vital to sell your land?
Listing Fees – The commissions paid to real estate agents/brokers for representing your property typically range between 5-10% of the eventual sales price.
Land Appraisal – Getting an appraisal to verify current market value shows buyers your asking price is appropriate and backed by data. Appraisals cost around $3,000.
Photography & Videography – Professionally captured visuals showing your land accurately and attractively are crucial. A few hundred dollars per shoot.
Website Listing Creation – Paying several hundred dollars to have appealing custom listings created on MLS/Zillow and niche land selling sites reaches buyers.
Paid Listing Boosts – Optional boosted listings on sites like Facebook and Google to get more exposure for a land listing run just a few hundred dollars as well.
Signage – Installing an eye-catching For Sale sign with contact details on the actual land provides valuable local awareness. Typically just $100-200 for printing fees.
The old thinking that vacant land sells itself without promotion is generally untrue in a competitive market. Paying key listing agents to market aggressively online and off, produce appealing listings, and ensure maximum exposure is pivotal to successfully flipping land quickly and profitably in virtually all cases. Proper marketing spends achieve faster deal velocities.
What final expenses arise at the closing when you sell?
Closing Fees – The buyer’s title company facilitating the transaction charges admin fees for document handling, disbursements, etc. Typically $500-$1,500 or so.
Capital Gains Tax – If the land sale price minus your purchase basis and costs results in a profit, capital gains taxes apply per IRS rules. Could be 10-20% or more of profit.
Payoff Fees – Any outstanding land mortgages, loans, property tax or utility liens require full payment with additional bank/county payoff processing fees.
Recording Fees – Final recording of the deed transfer and related closing documents with the county/town charges around $100 per document generally.
Legal Fees – Real estate attorneys often handle final review and execution of closing documents for a fee in the $500 range or higher.
Commissions – The buyer’s agent and your seller’s agent split a negotiated commission of usually 5-6% of sale price each.
As eager as land flip investors are to do the closing walkthrough and collect their big check, it’s key to keep in mind all the above closing costs coming out of sale proceeds. There can also be surprises like required fixing damage found in final inspections. Budgeting these final fees properly prevents your profits from shrinking unexpectedly after successfully flipping land. Before you start flipping land make sure to check out Is Land Flipping Legal? After you do that if you want to learn more check out Land Flipping 101.
